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Monday, December 6, 2021

Justin Fox: Are older kids still at home? Changes are on the horizon

When the pandemic broke last year, young people returned to their parents. Now, the proportion of people between the ages of 18 and 29 living with their parents and grandparents has returned to pre-COVID-19 levels.

However, you might think that the 42.8% of young people between the ages of 18 and 29 living in their children’s bedrooms or maybe in the basement is the September percentage calculated by University of Maryland sociology professor Philip Cohen from the Bureau’s data. population census – sounds like a lot. And yes, by the standards of the six decades leading up to the Great Recession, this is indeed the case. (One caveat to all of these statistics is that the Census Bureau struggled with a large increase in the proportion of people not responding to its polls last year, which may have done some weird things to its numbers.)

That this percentage has risen every decade since the 1960s suggests that some long-term social forces have been at work. More young people are attending college and thus delaying getting their own permanent home, and the overall process of growing up has become more protracted. Immigrant families, now much larger in the United States than in the 1960s and 1970s, are more likely to adopt the life of several generations.

However, there were obvious short-term economic reasons for the big jump from 2000 to 2010. In the latter half of that decade, huge numbers of Americans entered adulthood in the worst economic conditions in 75 years, and they could not afford to move alone. Things didn’t get much better in the 2010s as the labor market slowly improved, but inadequate housing supply in jobs-rich areas and tightening mortgage standards made it difficult for young people to find their own homes.

Another way to track this phenomenon is to simply count the number of households.

The number of households in the United States grew rapidly in the decades after World War II, first as the war and the Great Depression held back family formation, and then as many, many baby boomers began to enter adulthood and leave yourself. Household formation slowed as the growth of the young adult population slowed, and then began to decline in the 1990s. But even as the giant millennial generation began joining the age elite to relocate, household formation continued to drag on, and the 2010s recorded the lowest growth rate in at least 160 years.

So what is happening now? The Great Pandemic Return to the Nest has been reversed, but the proportion of young people living at home is still much higher than it was two decades ago.

This could mean a large, pent-up demand for housing, similar to what happened after World War II. And yes, household growth has been accelerating in recent months, according to data compiled by Apartment List senior researcher Rob Warnock from the same Census Bureau survey as the parent-living statistics in the top chart.

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But the main reason household growth was so slow before the pandemic was because young people (and not very young people) could not afford to move on their own.

With a 15.8% increase in rents nationwide over the past 12 months, according to the listing of apartments, and an 18.4% increase in home purchase prices, according to Zillow, this will continue to be the case for many. After a sharp jump earlier this year, the National Association of Realtors’ housing affordability index fell back to roughly 2018 levels – with rising incomes and low mortgage rates insufficient to offset large price increases.

The shift to telecommuting during the pandemic has had its negative consequences. This made housing more affordable for those who can keep jobs in high-end cities while moving to cheaper housing markets, and drove prices down in high-end cities first. But it has made these cheaper markets much less accessible to already working non-remote workers, even as prices have largely recovered in high-priced locations. “The increase in accessibility that has been seen in places like San Francisco and Seattle has been much more temporary than the loss in accessibility in places like Spokane and Boise,” says Warnock of Apartment List.

Some of this should resolve over time, in part because places like Spokane and Boise tend to find it easier to add more housing than San Francisco or Seattle. But the case for a sustainable housing boom over the next few years does seem to really depend on whether prices rise too much.

After that, another important event looms. According to the latest forecasts by the Census Bureau, the number of Americans between the ages of 25 and 34 will decline in the second half of this decade, and thereafter will grow extremely slowly in the coming decades. Moreover, since these projections date from 2017 and do not reflect the subsequent fall in both fertility and immigration, they are likely high.

The most obvious takeaway here is that demand for housing will slow down. But who could have predicted half a century ago that the percentage of young people living with their parents would grow so dramatically? Slower growth in young adults could, if it lead to slower growth in house prices, could possibly reverse that growth.

Or not: it is relatively easy to predict demographic trends; It is much more difficult to assess their impact on the economy, asset markets, politics, or whatever. But the propensity of young people to move out of their parental home seems to be an indicator to watch out for.

Justin Fox is a Bloomberg Opinion business columnist. He has been the editorial director of the Harvard Business Review and has written for Time, Fortune, and American Banker. He is the author of The Rational Market Myth.

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